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1- The Structure of Social Change 

Posted on October 18. 2012 

Why Public Policy? 

1. The Structure of Social Change 

Rich Fink, President, Charles G. Koch Charitable Fomdatwn 

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1- The Structure of Social Change I Liberty Guide I Page 5 

(A version of this originally appeared in the Philanthropy Magazine , Winter 1996, under the title, 
From Ideas to Action: The Role of Universities, Think Tanks, and Activist Groups.) 

Universities, think tanks, and citizen activist groups all present competing claims for being the best 
place to invest resources. As grant- makers, we hear the pros and cons of the different kinds of 
institutions seeking funding. 

The universities claim to be the real source of change. They give birth to the big ideas that provide the 
intellectual framework for social transformation. While this is true, critics contend that investing in 
universities produces no tangible results for many years or even decades. Also, since many academics 
tend to talk mostly to their colleagues in the specialized languages of their respective disciplines, their 
research, even if relevant, usually needs to be adapted before it is useful in solving practical problems. 

The think tanks and policy development organizations argue that they are most worthy of support 
because they work on real-world policy issues, not abstract concepts. They communicate not just 
among themselves, but are an immediate source of policy ideas for the White House, Congress, and 
the media. They claim to set the action agenda that leaders in government follow. Critics observe, 
however, that there is a surfeit of well-funded think tanks, producing more position papers and books 
than anyone could ever possibly read. Also, many policy proposals, written by “wonks” with little 
experience outside the policy arena, lack realistic implementation or transition plans. And all too 
often, think tanks gauge their success in terms of public relations victories measured in inches of press 
coverage, rather than more meaningful and concrete accomplishments. 

Citizen activist or implementation groups claim to merit support because they are the most effective at 
really accomplishing things. They are fighting in the trenches, and this is where the war is either won 
or lost. They directly produce results by rallying support for policy change. Without them, the work of 
the universities and policy institutes would always remain just so many words on paper, instead of 
leading to real changes in people’s lives. 

Others point out, however, that their commitment to action comes at a price. Because activist groups 
are remote from the universities and their framework of ideas, they often lose sight of the big picture. 
Their necessary association with diverse coalitions and politicians may make them too willing to 
compromise to achieve narrow goals. 

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Many of the arguments advanced for and against investing at the various levels are valid. Each type of 
institute at each stage has its strengths and weaknesses. But more importantly, we see that institutions 
at all stages are crucial to success. While they may compete with one another for funding and often 
belittle each other’s roles, we view them as complementary institutions, each critical for social 

Havek’s Model of Production 

Our understanding of how these institutions “fit together” is derived from a model put forward by the 
Nobel laureate economist Friedrich Havek . 

Hayek’s model illustrates how a market economy is organized, and has proven useful to students of 
economics for decades. While Hayek’s analysis is complicated, even a modified, simplistic version 
can yield useful insights. 

Hayek described the “structure of production” as the means by which a greater output of “consumer 
goods” is generated through savings that are invested in the development of “producer goods”— goods 
not produced for final consumption. 

The classic example in economics is how a stranded Robinson Crusoe is at first compelled to fish and 
hunt with his hands. He only transcends subsistence when he hoards enough food to sustain himself 
while he fashions a fishing net, a spear, or some other producer good that increases his production of 
consumer goods. This enhanced production allows even greater savings, hence greater investment and 
development of more complex and indirect production technologies. 

In a developed economy, the “structure of production” becomes quite complicated, involving the 
discovery of knowledge and integration of diverse businesses whose success and sustainability 
depend on the value they add to the ultimate consumer. Hayek’s model explains how investments in 
an integrated structure of production yield greater productivity over less developed or less integrated 

By analogy, the model can illustrate how investment in the structure of production of ideas can yield 

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greater social and economic progress when the structure is well-developed and well- integrated. For 
simplicity’s sake, I am using a snapshot of a developed economy, as Hayek did in parts of Prices and 
Production . and I am aggregating a complex set of businesses into three broad categories or stages of 
production. The higher stages represent investments and businesses involved in the enhanced 
production of some basic inputs we will call “raw materials.” The middle stages of production are 
involved in converting these raw materials into various types of products that add more value than 
these raw materials have if sold directly to consumers. In this model, the later stages of production are 
involved in the packaging, transformation, and distribution of the output of the middle stages to the 
ultimate consumers. 

Hayek’s theory of the structure of production can also help us understand how ideas are transformed 
into action in our society. Instead of the transformation of natural resources to intermediate goods to 
products that add value to consumers, the model, which I call the Structure of Social Change, deals 
with the discovery, adaptation, and implementation of ideas into change that increases the well-being 
of citizens. Although the model helps to explain many forms of social change, I will focus here on the 
type I know best— change that results from the formation of public policy. 

Applying Hayek’s Model 

When we apply this model to the realm of ideas and social change, at the higher stages we have the 
investment in the intellectual raw materials, that is, the exploration and production of abstract 
concepts and theories. In the public policy arena, these still come primarily (though not exclusively) 
from the research done by scholars at our universities. At the higher stages in the Structure of Social 
Change model, ideas are often unintelligible to the layperson and seemingly unrelated to real-world 
problems. To have consequences, ideas need to be transformed into a more practical or useable form 

In the middle stages, ideas are applied to a relevant context and molded into needed solutions for 
real-world problems. This is the work of the think tanks and policy institutions. Without these 
organizations, theory or abstract thought would have less value and less impact on our society. 

But while the think tanks excel at developing new policy and articulating its benefits, they are less 
able to implement change. Citizen activist or implementation groups are needed in the final stage to 
take the policy ideas from the think tanks and translate them into proposals that citizens can 
understand and act upon. These groups are also able to build diverse coalitions of individual citizens 
and special interest groups needed to press for the implementation of policy change. 

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We at the Koch Foundation find that the Structure of Social Change model helps us to understand the 
distinct roles of universities, think tanks, and activist groups in the transformation of ideas into action. 
We invite you to consider whether Hayek’s model, on which ours is based, is useful in your 
philanthropy. Though I have confined my examples to the realm of public policy, the model clearly 
has much broader social relevance. 

Dr. Richard Fink is an executive vice president and member of the board of directors of Koch 
Industries, Inc. Additionally, Fink is chairman of the board and chief executive officer ofK och 
Companies Public Sector, LLC, which provides legal, government, philanthropy, and community- 
relations services to Koch companies. He is also a director of Georgia-Pacific and Flint Hills 
Resources, LLC, a refining and petrochemical company. Fink is the president of the Charles G. Koch 
and Claude R. Lambe Charitable Foundations and a director of the Fred C. and Mary R. Koch 
Foundation. Before his employment with Koch Industries, Fink was an executive vice president and 
an associate economics professor at George Mason University. In 1978, he and Charles Koch 
founded George Mason ’s university-based research organization, the Mercatus Center. He is a 
member of the Mercatus board, which he chaired until 1990. Fink also served on George Mason’s 
board of visitors from 1997 through June 2005. In 1984, Fink co-founded Citizens for a Sound 
Economy Foundation and its affiliate, Citizens for a Sound Economy. In 2003, the foundation changed 
its name to Americans for Prosperity Foundation; Fink is a member of the board of directors . 
Partnering with David Koch and Art Pope, they set up Americans for Prosperity. He serves on the 
advisory board of the International Foundation for Research and Experimental Economics and is 
currently a member of the board of directors for the Institute for Humane Studies, Jack Miller Center 
and The Laffer Center for Global Economic Growth. He previously served on the board of the 
American Prosecutors Research Institute, Bill of Rights Institute, George Mason University 
Foundation, Public Choice Center, and Reason Foundation. He was also a member of the Consumer 
Advisory Council of the Federal Reserve Board and President Ronald Reagan’s Commission on 
Privatization. Fink earned his PhD. from New York University and M .A. from UCLA. He graduated 
Phi Beta Kappa, magna cum laude with a bachelor’s in economics from Rutgers University. 

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